Case Law Details
DCIT Vs Avichal Buildcon Pvt. Ltd. (ITAT Delhi)
In a recent ruling by the Income Tax Appellate Tribunal (ITAT) Delhi, a crucial issue regarding the allowance of depreciation on assets acquired through a demerger was addressed. The case, involving Avichal Buildcon Pvt. Ltd., shed light on the complex interplay between demerger transactions, depreciation claims, and government incentives. This article provides a detailed analysis of the case, emphasizing its implications and significance in tax law jurisprudence.
Background: Avichal Buildcon Pvt. Ltd. emerged as a corporate entity following the demerger of the rubber thread unit of M/s Dharmpal Satyapal Ltd. The dispute centered around the eligibility of the company to claim depreciation on assets acquired from the demerged entity. The Revenue argued that the Central Excise Duty Exemption granted to the demerged company should reduce the cost of assets for depreciation purposes.
Key Arguments: The crux of the dispute lay in the interpretation of Explanation 10 to Section 43(1) of the Income Tax Act, which pertains to the determination of the actual cost of assets acquired through government incentives. While the Revenue contended that such incentives should reduce the cost of assets, the assessee argued that depreciation should be claimed on the written down value of assets as per the demerged company’s books on the date of demerger.
Tribunal’s Analysis: The ITAT examined previous rulings, including those in similar cases involving M/s Abhisar Buildwell Pvt. Ltd., to assess the merit of the arguments presented. It emphasized that assets acquired at the written down value as per the demerged company’s books should not have their costs reduced post-demerger. The Tribunal upheld the decision of the Commissioner of Income Tax (Appeals), directing the Assessing Officer to verify the assets’ valuation at the time of demerger and allow depreciation if claimed on such values.
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